Macerich surrenders Santa Monica Place to lender after $300M default

Macerich has surrendered the Santa Monica Place mall to its lender after defaulting on a $300 million loan.

The locally based real estate investment trust has walked away from the 527,000-square-foot, open-air mall at 395 Santa Monica Place, a block from the Santa Monica pier, the Santa Monica Daily Press and Women’s Wear Daily reported.

The loan, which had been in special servicing, was set to expire in December, when Macerich negotiated an extension with lender Wells Fargo. The REIT defaulted on its loan on April 9.

Macerich, owner of the multi-story mall at the end of the Third Street Promenade, has struggled for the past five years to make it work. As tenants fled in the wake of the pandemic, the landlord strained to fill the empty stores.

“It was pretty clear that Santa Monica has continuing issues and it is under water,” Scott Kingsmore, Macerich’s chief financial officer and treasurer told WWD, which put the broker valuation for Santa Monica Place at $264.5 million. “Ultimately, trying to figure out the end game was just too obscure.”

The owner of 47 million square feet of strip and indoor malls across the U.S. posted a net loss of nearly $127 million in the first quarter, more than double its loss of $58.7 million during the same period last year.

The 60-year-old REIT, the nation’s third largest mall owner, cited a plan under new leadership to reduce its debt. Former CEO Thomas O’Hern retired March 1, with former Spirit Realty Capital CEO Jackson Hsieh taking the helm.

Santa Monica Place, designed by Frank Gehry in 1980, was meant to revitalize the Third Street Promenade. It was renovated for $265 million in 2007, and reopened three years later as an open-air mall.

Macerich bought Santa Monica Place in October 1999 for $130 million, or $247 per square foot.

The shopping center had two department store anchors, 120 shops and top-deck dining, with sweeping views of the Pacific Ocean. In 2019, before the pandemic, it was 95 percent leased.

In 2021, Bloomingdale’s and ArcLight Cinemas both closed their doors, causing occupancy to shrink to 85 percent. Early last year, more than half of the property was available for lease —- and reeling in about 70 percent of what was needed to service the debt, according to Macerich.

The surrender by Macerich to Wells Fargo comes days after Maryland-based Federal Realty Investment Trust announced it had sold eight buildings on the Third Street Promenade for $103 million, ending a nearly 30-year presence there.

The sale for the eight buildings, which total 185,000 square feet, came out to $556 per square foot. The buyer of the portfolio was not disclosed.

— Dana Bartholomew